VISKASE COMPANIES, INC. ANNUAL REPORT 2016

Transcription

1 VISKASE COMPANIES, INC. ANNUAL REPORT 2016 This report has been prepared in accordance with Section 5.04 of the Credit Agreement dated as of January 30, 2014 among Viskase Companies, Inc. (the Company ) and UBS AG, Stamford Branch as administrative agent and as collateral agent (the Agent ). 1

2 CONSOLIDATED FINANCIAL STATEMENTS OF VISKASE COMPANIES, INC. AND SUBSIDIARIES 1. Financial Statements: Report of Independent Certified Public Accountants Consolidated Balance Sheets as of December 31, 2016 and 2015 Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2016, 2015 and 2014 Consolidated Statements of Stockholders' Equity for years ended December 31, 2016, 2015 and 2014 Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and Notes to Consolidated Financial Statements

3 GrantThornton Tower 171 N. ClarkStreet,Suite 200 Chicago,IL T F Boardof Directors ViskaseCompanies,Inc. WehaveauditedtheaccompanyingconsolidatedfinancialstatementsofViskaseCompanies,Inc. (a Delawarecorporation)andsubsidiaries, which comprise theconsolidated balancesheets as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive (loss) income,stockholders equity,andcash flowsfor theyears thenended,and therelated notes to thefinancialstatements. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United Statesof America; this includes the design, implementation,and maintenanceof internalcontrol relevanttothepreparationandfairpresentationofconsolidatedfinancialstatementsthatarefree frommaterial misstatement,whether due tofraudor error. Auditor s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on ouraudits. Weconductedourauditsinaccordancewithauditingstandardsgenerallyacceptedin the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentationoftheconsolidatedfinancialstatementsinordertodesignauditproceduresthatare appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectivenessoftheentity sinternalcontrol. Accordingly,weexpressnosuchopinion. Anaudit also includes evaluating the appropriateness of accounting policies used and the reasonableness U.S. member firm of Grant Thornton International Ltd

4 of significant accounting estimates made by management, as well as evaluating the overall presentationof theconsolidatedfinancialstatements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basisforour audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Viskase Companies, Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for the yearsthenendedinaccordancewithaccountingprinciplesgenerallyacceptedintheunitedstates of America. Emphasis of matter We draw attention to Note 1 to thefinancialstatements,which describes the Company adopted new accounting guidance in 2016 related to the presentation of deferred financing costs. Our opinion is not modifiedwithrespect to this matter. Chicago,Illinois March 31, 2017 U.S. member firm of Grant Thornton International Ltd

5 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except for Number of Shares) December 31, 2016 December 31, 2015 ASSETS Current assets: Cash and cash equivalents $39,129 $37,321 Restricted cash 2,063 1,364 Receivables, net 62,938 60,252 Inventories 72,279 76,788 Other current assets 28,361 24,489 Total current assets 204, ,214 Property, plant and equipment 308, ,355 Less accumulated depreciation (153,554) (140,727) Property, plant and equipment, net 155, ,628 Other assets, net 11,666 8,860 Goodwill Deferred income taxes 51,386 48,848 Total Assets $423,438 $411,550 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt $2,750 $3,160 Short-term portion of capital lease obligations Accounts payable 28,582 25,472 Accrued liabilities 38,796 34,809 Total current liabilities 70,218 63,615 Long-term debt, net of current maturities 261, ,148 Capital lease obligations, net of current portion Long-term liabilities 1,770 - Accrued employee benefits 56,354 50,495 Deferred income taxes Stockholders equity: Common stock, $0.01 par value; 37,329,269 shares issued and 36,523,999 outstanding at December 31, 2016 and 36,989,711 shares issued and 36,184,441 outstanding at December 31, Paid in capital 32,472 32,861 Retained earnings 85,832 80,272 Less 805,270 treasury shares, at cost (298) (298) Accumulated other comprehensive loss (85,575) (80,050) Total stockholders' equity 32,804 33,155 Total Liabilities and Stockholders' Equity $423,438 $411,550 See notes to consolidated financial statements. 5

6 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands) Year Year Year Ended Ended Ended December December December 31, , , 2014 NET SALES $328,820 $343,583 $365,203 Cost of sales 247, , ,267 GROSS MARGIN 81,250 84,690 90,936 Selling, general and administrative 51,934 52,589 44,643 Amortization of intangibles Asset impairment charge Restructuring expense 4,809 2, OPERATING INCOME 24,489 28,968 45,978 Interest income Interest expense, net 12,543 12,458 14,191 Loss on early extinguishment of debt ,739 Other (income) expense, net (1,238) 5,358 3,179 INCOME BEFORE INCOME TAXES 13,206 11,183 12,888 Income tax provision 7,646 9,886 3,058 NET INCOME $5,560 $1,297 $9,830 WEIGHTED AVERAGE COMMON SHARES - BASIC 36,186,302 36,184,334 36,131,795 PER SHARE AMOUNTS: EARNINGS PER SHARE - BASIC $0.15 $0.04 $0.27 WEIGHTED AVERAGE COMMON SHARES - DILUTED 36,243,772 37,189,121 37,280,064 PER SHARE AMOUNTS: EARNINGS PER SHARE - DILUTED $0.15 $0.03 $0.26 See notes to consolidated financial statements. 6

7 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) Ended Ended Ended December December December 31, , , 2014 Net income $5,560 $1,297 $9,830 Other comprehensive (loss) income, net of tax Pension liability adjustment 482 1,454 (16,484) Foreign currency translation adjustment (6,007) (8,546) (9,530) Other comprehensive (loss), net of tax (5,525) (7,092) (26,014) Comprehensive income (loss) $35 ($5,795) ($16,184) See notes to consolidated financial statements. 7

8 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In Thousands) Accumulated other Total Common Paid in Treasury Retained comprehensive stockholders stock capital stock earnings loss equity (deficit) Balance December 31, 2013 $369 $32,839 ($298) $69,145 ($46,944) $55,111 Net income ,830-9,830 Foreign currency translation adjustment (9,530) (9,530) Pension liability adjustment, net of tax (16,484) (16,484) Stock option expense Stock option exercise 1 (98) (97) Balance December 31, 2014 $370 $32,801 ($298) $78,975 ($72,958) $38,890 Net income ,297-1,297 Foreign currency translation adjustment (8,546) (8,546) Pension liability adjustment, net of tax ,454 1,454 Stock option expense Balance December 31, 2015 $370 $32,861 ($298) $80,272 ($80,050) $33,155 Net income ,560-5,560 Foreign currency translation adjustment (6,007) (6,007) Pension liability adjustment, net of tax Stock option exercise 3 (389) (386) Balance December 31, 2016 $373 $32,472 ($298) $85,832 ($85,575) $32,804 See notes to consolidated financial statements. 8

9 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Year Year Year Ended Ended Ended December December December 31, , , 2014 Cash flows from operating activities: Net income $5,560 $1,297 $9,830 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 19,051 18,843 20,101 Stock-based compensation Amortization of intangibles Amortization of deferred financing fees Deferred income taxes (1,279) 3, Loss on disposition of assets 244 1, Bad debt and accounts receivable provision Loss on early extinguishment of debt ,739 Non-cash interest on notes Changes in operating assets and liabilities: Receivables (3,191) 1,164 1,459 Inventories 3,297 (2,207) (8,209) Other current assets (4,131) 1,968 2,270 Accounts payable 3,400 (1,297) (3,941) Accrued liabilities 4,752 2,788 (12,181) Accrued employee benefits 5, (4,556) Other assets (4,086) (2,294) (6,242) Other (1,109) (1,383) (1,309) Total adjustments 22,816 23,612 4,960 Net cash provided by operating activities 28,376 24,909 14,790 Cash flows from investing activities: Capital expenditures (18,091) (21,991) (23,091) Acquisition of businesses, net of cash acquired (4,063) - - Proceeds from disposition of assets Net cash used in investing activities (22,103) (21,951) (23,089) Cash flows from financing activities: Issuance of common stock 3-1 Deferred financing costs (245) (120) (3,228) Proceeds from long-term debt ,313 Repayment of short-term debt (3,166) (3,310) (15,357) Repayment of long-term debt - - (225,617) Repayment of capital lease (170) (348) (375) Restricted cash (699) - (102) Net cash (used in) provided by financing activities (4,277) (3,778) 29,635 Effect of currency exchange rate changes on cash (188) (1,169) (1,105) Net increase (decrease)in cash and equivalents 1,808 (1,989) 20,231 Cash and equivalents at beginning of period 37,321 39,310 19,079 Cash and equivalents at end of period $39,129 $37,321 $39,310 Supplemental cash flow information: Interest paid less capitalized interest $11,845 $13,761 $10,834 Income taxes paid $6,750 $6,376 $4,889 Non cash capital expenditures $1, See notes to consolidated financial statements. 9

10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands) 1. Summary of Significant Accounting Policy Nature of Operations Viskase Companies, Inc. together with its subsidiaries ( we or the Company ) is a producer of nonedible cellulosic, fibrous and plastic casings used to prepare and package processed meat products, and provides value-added support services relating to these products, for some of the largest global consumer products companies. We were incorporated in Delaware in The Company operates ten manufacturing facilities, six distribution centers and three service centers in North America, Europe, South America, and Asia and, as a result, is able to sell its products in nearly one hundred countries throughout the world. Principles of Consolidation The consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated in consolidation. Reclassification Reclassifications have been made to the prior years financial statements to conform to the 2016 presentation. Use of Estimates in the Preparation of Financial Statements The financial statements are prepared in accordance with generally accepted accounting principles ( GAAP ) in the United States of America and include the use of estimates and assumptions that affect a number of amounts included in the Company s financial statements, including, among other things, pensions and other postretirement benefits and related disclosures, reserves for excess and obsolete inventory, allowance for doubtful accounts, and income taxes. Management bases its estimates on historical experience and other assumptions that we believe are reasonable. If actual amounts are ultimately different from previous estimates, the revisions are included in the Company s results for the period in which the actual amounts become known. Historically, the aggregate differences, if any, between the Company s estimates and actual amounts in any year have not had a significant effect on the Company s consolidated financial statements. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers cash equivalents to consist of all highly liquid debt investments purchased with an initial maturity of approximately three months or less. Due to the short-term nature of these instruments, the carrying values approximate the fair market value. Cash equivalents include $158 and $163 of short-term investments at December 31, 2016 and December 31, 2015, respectively. Of the cash held on deposit, essentially all of the cash balance was in excess of amounts insured by the Federal Deposit Insurance Corporation or other foreign provided bank insurance. The Company performs periodic evaluations of these institutions for relative credit standing and has not experienced any losses as a result of its cash concentration. Consequently, no significant concentrations of credit risk are considered to exist. Receivables Trade accounts receivable are classified as current assets and are reported net of allowance for doubtful accounts and a reserve for returns. This estimated allowance is primarily based upon our evaluation of the financial condition of each customer, each customer s ability to pay and historical write-offs. 10

11 Inventories Inventories are valued at the lower of first-in, first-out ( FIFO ) cost or market. Property, Plant and Equipment The Company carries property, plant and equipment at cost less accumulated depreciation. Property and equipment additions include acquisition of property and equipment and costs incurred for computer software purchased for internal use including related external direct costs of materials and services and payroll costs for employees directly associated with the project. Upon retirement or other disposition, cost and related accumulated depreciation are removed from the accounts, and any gain or loss is included in results of operations. Depreciation is computed on the straight-line method using a half year convention over the estimated useful lives of the assets ranging from (i) building and improvements - 10 to 32 years, (ii) machinery and equipment - 4 to 12 years, (iii) furniture and fixtures - 3 to 12 years, (iv) auto and trucks - 2 to 5 years, (v) data processing 3 to 7 years and (vi) leasehold improvements - shorter of lease or useful life. In the ordinary course of business, we lease certain equipment, consisting mainly of autos, and certain real property. Real property consists of manufacturing, distribution and office facilities. Deferred Financing Costs Deferred financing costs are presented in the balance sheet as a direct deduction from the carrying amount of debt liability and amortized as expense using the effective interest rate method over the expected term of the related debt agreement. Amortization of deferred financing costs is classified as interest expense. Patents, Trademarks and Goodwill Patents and trademarks are amortized on the straight-line method over an estimated average useful life of 10 years. We evaluate the carrying value of goodwill annually and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to: (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. Goodwill impairment testing involves a two-step process. Step 1 compares the fair value of our reporting units to their carrying values. If the fair value of the reporting unit exceeds its carrying value, no further analysis is necessary. The reporting unit fair value is based upon consideration of various valuation methodologies, including guideline transaction multiples, multiples of current earnings, and projected future cash flows discounted at rates commensurate with the risk involved. If the carrying amount of the reporting unit exceeds its fair value, Step 2 must be completed to quantify the amount of impairment. Step 2 calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit, from the fair value of the reporting unit as determined in Step 1. The implied fair value of goodwill determined in this step is compared to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss, equal to the difference, is recognized. Long-Lived Assets The Company continues to evaluate the recoverability of long-lived assets including property, plant and equipment, trademarks and patents. Impairments are recognized when the expected undiscounted future operating cash flows derived from long-lived assets are less than their carrying value. If impairment is identified, valuation techniques deemed appropriate under the particular circumstances will be used to determine the asset s fair value. The loss will be measured based on the excess of carrying value over the determined fair value. The review for impairment is performed 11

12 whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Shipping and Handling The Company periodically bills customers for shipping charges. These amounts are included in net revenue, with the associated costs included in cost of sales. Pensions and Other Postretirement Benefits The Company uses appropriate actuarial methods and assumptions in accounting for its defined benefit pension plans and non-pension postretirement benefits. Actual results that differ from assumptions used are accumulated and amortized over future periods and, accordingly, generally affect recognized expense and the recorded obligation in future periods. Therefore, assumptions used to calculate benefit obligations as of the end of a fiscal year directly impact the expense to be recognized in future periods. The primary assumptions affecting the Company s accounting for employee benefits as of December 31, 2016 are as follows: Long-term rate of return on plan assets: The required use of the expected long-term rate of return on plan assets may result in recognized returns that are greater or less than the actual returns on those plan assets in any given year. Over time, however, the expected long-term rate of return on plan assets is designed to approximate actual earned long-term returns. The Company uses long-term historical actual return information, the mix of investments that comprise plan assets, and future estimates of long-term investment returns by reference to external sources to develop an assumption of the expected long-term rate of return on plan assets. The expected long-term rate of return is used to calculate net periodic pension cost. In determining its pension obligations, the Company is using a long-term rate of return on U.S. plan assets of 7.50% for The Company is using a long-term rate of return on French plan assets of 3.20% for The German pension plan has no assets. Discount rate: The discount rate is used to calculate future pension and postretirement obligations. The Company is using a Mercer Bond yield curve in determining its pension obligations. The Company is using a discount rate of 4.47% for The Company is using a weighted average discount rate of 1.45% on its non-u.s. pension plans for Income Taxes Deferred tax assets and liabilities are measured using enacted tax laws and tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income in the period that includes the enactment date. In addition, the amounts of any future tax benefits are reduced by a valuation allowance to the extent such benefits are not expected to be realized on a more likely than not basis. Interest and penalties related to unrecognized tax benefits are included as a component of tax expense. Other Comprehensive Income (Loss) Comprehensive income (loss) includes all other non-stockholder changes in equity. Changes in other comprehensive income (loss) in 2016 and 2015 resulted from changes in foreign currency translation and minimum pension liability. Revenue Recognition Revenues are recognized at the time products are shipped to the customer, under F.O.B shipping point, customer pick up or F.O.B port terms, which is the point at which title is transferred, the customer has the assumed risk of loss, and when payment has been received or collection is reasonably assured. Revenues are net of discounts, rebates and allowances. Viskase records all labor, raw materials, in-bound freight, plant receiving and purchasing, warehousing, handling and distribution costs as a component of costs of sales. 12

13 Acquisitions of Businesses We account for business combinations under the acquisition method of accounting (other than acquisitions of businesses under common control), which requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date including our estimates for intangible assets, contractual obligations assumed, pre-acquisition contingencies, and contingent consideration, where applicable. In valuing our acquisitions we estimate fair values based on industry data and trends and by reference to relevant market rates and transactions, and discounted cash flow valuation methods, among other factors. The discount rates used were commensurate with the inherent risks associated with each type of asset and the level and timing of cash flows appropriately reflect market participant assumptions. The primary items that generate goodwill include the value of the synergies between the acquired company and our existing businesses and the value of the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset. Financial Instruments The Company routinely enters into fixed price natural gas agreements which require us to purchase a portion of our natural gas each month at fixed prices. These fixed price agreements qualify for the normal purchases scope exception under derivative and hedging standards, therefore the natural gas purchases under these contracts were expensed as incurred and included within cost of sales. As of December 31, 2016, future annual minimum purchases remaining under the agreement are $1,571. The Company s financial instruments include cash and cash equivalents, accounts receivable and accounts payable. The carrying amounts of these financial assets and liabilities approximate fair value due to the short maturities of these instruments. New Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update No ( ASU ), Revenue from Contracts with Customers, which supersedes most of the current revenue recognition requirements. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. On July 9, 2015, the FASB board voted to defer the effective date to annual reporting periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019 (early adoption is permitted no earlier than the original effective date). The guidance permits the use of either a retrospective or cumulative effect transition method. The Company is currently assessing the impact that adopting this new accounting guidance will have on the Company s consolidated financial statements. We will adopt these new standards on January 1, 2018 using the modified retrospective application method. In July 2015, the FASB issued ASU No , Simplifying the Measurement of Inventory. This update provides that an entity should measure inventory with the scope of the update at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The 13

14 amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, The Company is currently assessing the impact that adopting this new accounting guidance will have on the Company s consolidated financial statements. In April 2015, the FASB issued ASU , Simplifying the Presentation of Debt Issuance Costs, which amends FASB ASU Subtopic , Interest - Imputation of Interest. The new standard requires that all costs incurred to issue debt be presented in the balance sheet as a direct deduction from the carrying value of the debt. The standard is effective for interim and annual periods beginning after December 31, 2015 and is required to be applied on a retrospective basis. The Company s adoption of this new guidance has resulted in a reclassification of debt issuance costs on our consolidated balance sheets of $1,996 and $2,390 at December 31, 2016 and December 31, 2015, respectively. In January 2016, the FASB issued ASU , Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This new standard provides guidance on how entities measure certain equity investments and present changes in the fair value. This standard requires that entities measure certain equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. ASU is effective for fiscal years beginning after December 31, The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company's financial statements and disclosures. In February 2016, the FASB issued ASU , Leases (Topic 842), which requires lessees to recognize a right of use asset and related lease liability for those leases classified as operating leases at the commencement date and have lease terms of more than 12 months. This topic retains the distinction between finance leases and operating leases. ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, and must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company's financial statements and disclosures. In March 2016, the FASB issued ASU , Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarify the implementation guidance on principal versus agent considerations. The effective date to annual reporting periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019 (early adoption is permitted no earlier than the original effective date). The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company's financial statements and disclosures. In March 2016, the FASB issued ASU No , Compensation-Stock Compensation- Improvements to Employee Share-Based Payment Accounting (Topic 718), which involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new standard, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The Company will be early adopt this ASU for fiscal years beginning after December 15, 2016 including interim periods. Management does not expect the adoption of this guidance to have a material impact on the financial statements. In August 2016, the FASB issued ASU No , Classification of Certain Cash Receipts and Cash Payments, which amends FASB ASC Topic 230, Statement of Cash Flows. This ASU seeks to reduce the diversity currently in practice by providing guidance on the presentation of eight specific cash flow issues in the statement of cash flows. This ASU is effective for fiscal years beginning after 14

15 December 15, 2017, and interim periods within those fiscal years. We currently evaluating the impact of this guidance on our consolidated statement of cash flows. In October 2016, the FASB issued ASU No , Intra-Entity Transfers of Assets Other Than Inventory, which amends FASB ASC Topic 740, Income Taxes. This ASU requires the recognition of income tax consequences of an intraentity transfer of an asset other than inventory when the transfer occurs. Current U.S. GAAP prohibits the recognition of current and deferred incomes taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial position, results of operations, comprehensive income, cash flows and disclosures. In November 2016, the FASB issued ASU No , Restricted Cash, which amends FASB ASC Topic 230, Statement of Cash Flows. This ASU requires that the statement of cash flows explain the change during the period total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial position, results of operations, comprehensive income, cash flows and disclosures. 2. Cash and cash equivalents December 31, 2016 December 31, 2015 Cash and cash equivalents $39,129 $37,321 Restricted cash 2,063 1,364 $41,192 $38,685 As of December 31, 2016 and December 31, 2015, cash held in foreign banks was $27,224 and $17,407, respectively. As of December 31, 2016 and December 31, 2015, letters of credit in the amount of $2,063 and $1,364, respectively, were outstanding under facilities with a commercial bank, and were cash collateralized in a restricted account. 3. Receivables, net December 31, 2016 December 31, 2015 Accounts receivable, gross $63,795 $61,258 Less allowance for doubtful accounts (553) (583) Less allowance for sales returns (304) (423) $62,938 $60,252 15

16 December 31, 2016 December 31, 2015 December 31, 2014 Beginning balance $1,006 $1,121 $1,264 Provision (recoveries) Write-offs (152) (564) (524) Foreign translation (7) (26) (22) Ending balance $857 $1,006 $1, Inventory December 31, 2016 December 31, 2015 Raw materials $9,777 $11,612 Work in process 34,249 31,496 Finished products 28,253 33,680 $72,279 $76, Property, Plant and Equipment, Net December 31, 2016 December 31, 2015 Land and improvements $1,954 $1,888 Buildings and improvements 37,928 38,056 Machinery and equipment 261, ,751 Construction in progress 7,838 7,660 $308,841 $294,355 Accumulated Depreciation December 31, 2016 December 31, 2015 Land and improvements $328 $304 Buildings and improvements 12,551 10,877 Machinery and equipment 140, ,546 $153,554 $140,727 16

17 6. Other Assets December 31, 2016 December 31, 2015 Patents and Trademarks $4,865 $4,782 Less: Accumulated amortization (4,662) (4,644) Patents and trademarks, net Other intangibles 1,236 1,236 Less: Accumulated amortization (1,236) (1,236) Other intangibles, net - - Other taxes receivable 11,145 8,347 Miscellaneous $11,666 $8, Accrued Liabilities Accrued liabilities were comprised of: December 31, 2016 December 31, 2015 Compensation and employee benefits $14,153 $12,471 Taxes payable 14,177 14,955 Accrued volume and sales rebates 1,305 1,778 Accrued interest payable 41 8 Restructuring reserve 3,210 1,713 Other 5,910 3,884 $38,796 $34, Debt Obligations December 31, 2016 December 31, 2015 Short-term debt: Bank term loan $2,750 $2,750 Europe unsecured loan Total short-term debt 2,750 3,160 Long-term debt: Bank term loan, net of discount 261, ,841 Other Total long-term debt 261, ,148 Total debt $264,655 $267,308 Revolving Credit Facility On January 30, 2014, the Company entered into an Amendment Agreement to the $25,000 Revolving Credit Facility, together with an amended Loan Agreement, with Icahn Enterprises Holdings L.P. Drawings under the amended Revolving Credit Facility bear interest at daily three month LIBOR plus 17

18 2.0%. The amended Revolving Credit Facility also provides for an unused line fee of 0.375% per annum. On March 1, 2016, the Company entered into the Tenth Amendment to the Loan and Security Agreement with Icahn Enterprises L.P., extending the maturity date of the Revolving Credit Facility from January 30, 2017 to January 30, The amendment included a fee of $125 for the extension. Indebtedness under the amended Revolving Credit Facility is secured by liens on substantially all of the Company s domestic and Mexican assets, with liens on (i) accounts, inventory, lockboxes, deposit accounts and investment property (the ABL Priority Collateral ) to be contractually senior to the liens securing the Term Loan (as hereafter defined) pursuant to an intercreditor agreement, (ii) real property, fixtures and improvements thereon, equipment and proceeds thereof (the Fixed Asset Priority Collateral ), to be contractually subordinate to the liens securing the Term Loan pursuant to such intercreditor agreement, and (iii) all other assets, to be contractually pari passu with the liens securing the Term Loan pursuant to such intercreditor agreement. Our future direct or indirect material domestic subsidiaries are required to guarantee the obligations under the amended Revolving Credit Agreement, and to provide security by liens on their assets as described above. The amended Revolving Credit Facility contains various covenants which restrict the Company s ability to, among other things, incur indebtedness, create liens on our assets, make investments, enter into merger, consolidation or acquisition transactions, dispose of assets (other than in the ordinary course of business), make certain restricted payments, enter into sale and leaseback transactions and transactions with affiliates, in each case subject to permitted exceptions. The amended Revolving Credit Facility also requires that we comply with certain financial covenants, including meeting a minimum EBITDA requirement and limitations on capital expenditures, in the event our usage of the Revolving Credit Facility exceeds 90% of the facility amount. The Company is in compliance with the Revolving Credit Facility covenants as of December 31, The amended Revolving Credit Facility had no borrowings as of December 31, 2016 and December 31, In its foreign operations, the Company has unsecured lines of credit with various banks providing approximately $8,000 of availability. There were no borrowings under the lines of credit at December 31, Term Loan Facility On January 30, 2014, the Company entered into a Credit Agreement with UBS AG, Stamford Branch ( UBS ), as Administrative Agent and Collateral Agent, and the Lenders parties thereto, providing for a $275,000 senior secured covenant lite term loan facility ( Term Loan ). The Term Loan bears interest at a LIBOR Rate plus 3.25% (with the LIBOR Rate carrying a 1.00% floor or at a Base Rate equal to the sum of (1) the greatest of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.50%, (c) one-month LIBOR plus 1.0%, or (d) 2.0%, plus (2) 2.25%). As of December 31, 2016, the interest rate was 4.38% on the Term Loan. The Term Loan has a 1% per annum amortization with a maturity date of January 30, The Term Loan is subject to certain additional mandatory prepayments upon asset sales, incurrence of indebtedness not otherwise permitted, and based upon a percentage of excess cash flow. Prepayments on the Term Loan may be made at any time, subject to a prepayment premium of 1% for certain prepayments during the first six months of the term. Indebtedness under the Term Loan is secured by liens on substantially all of the Company s domestic and Mexican assets, with liens on (i) the Fixed Asset Priority Collateral, to be contractually senior to the liens securing the Revolving Credit Facility pursuant to the intercreditor agreement, (ii) the ABL Priority Collateral, to be contractually subordinate to the liens securing the Revolving Credit Facility pursuant to the intercreditor agreement, and (iii) all other assets, to be contractually pari passu with the liens securing the Revolving Credit Facility pursuant to the intercreditor agreement. Our future direct or indirect material domestic subsidiaries are required to guarantee the obligations under the Term Loan, and to provide security by liens on their assets as described above. 18

19 Debt Maturity The aggregate maturities of debt (1) for each of the next five years are: Thereafter Term Loan Facility $ 2,750 $ 2,750 $ 2,750 $ 2,750 $ 255,750 $ - Other $ 2,750 $ 2,750 $ 2,750 $ 2,750 $ 255,750 $ 848 (1) The aggregate maturities of debt represent amounts to be paid at maturity and not the current carrying value of the debt. (2) The amounts are for the remainder of the calendar year. 9. Capital Lease Obligations The Company has entered into capital lease obligations to acquire certain equipment and building improvements for its manufacturing facilities. The equipment leases have a term of 3 to 5 years and the building improvement lease has a term of 5 years. The Company has determined that automobiles leased by the Company are capital leases with an average term of 4 years. The depreciation of capital leases is included in depreciation expense. The following is an analysis of leased property under capital leases by major classes as of December 31, 2016 and December 31, December 31, December 31, Building and improvements $453 $406 Machinery and equipment 2,169 2,273 Less: Accumulated depreciation (2,454) (2,344) $168 $335 The following is a schedule by years of minimum future lease payments as of December 31, Year ending December 31, 2017 $ Thereafter - Total minimum payments required 167 Less amount representing interest (16) Present value of net minimum lease payments $ Operating Leases The Company has operating lease agreements for machinery, equipment and facilities. The majority of the facility leases require the Company to pay maintenance, insurance and real estate taxes. Certain of these leases contain escalation clauses and renewal options. 19

20 Future minimum lease payments for operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2016, are: 2017 $2, , , , ,207 Total thereafter 10,778 Total minimum lease payments $25,166 Total rent expense during 2016, 2015 and 2014 amounted to $2,836, $3,313 and $3,525 respectively. 11. Retirement Plans The Company and its subsidiaries have defined contribution and defined benefit plans varying by country and subsidiary. The Company s operations in the United States, France, Germany and Canada historically offered defined benefit retirement plans ( Plan ) to their employees. Most of these benefits have been terminated, resulting in various reductions in liabilities and curtailment gains. Included in accumulated other comprehensive loss, net of tax of $17,714 for U.S. and $1,287 non U.S., as of December 31, 2016 are the following amounts not yet recognized in net periodic benefit cost: U.S. Pension Benefits Non U.S. Pension Benefits Net actuarial loss ($49,292) ($2,451) Amounts included in other comprehensive loss expected to be recognized as a component of net periodic benefit cost for the year ending December 31, 2017 are: U.S. Pension Benefits Non U.S. Pension Benefits Net actuarial loss ($4,604) ($162) The measurement date for all defined benefit plans is December 31. The year end status of the plans is as follows: 20

21 U.S. Pension Benefits Non U.S. Pension Benefits Change in benefit obligation: Projected benefit obligation at beginning of year $156,435 $165,458 $10,023 $11,924 Service cost Interest cost 7,092 6, Actuarial loss (gain) 3,918 (7,726) 639 (244) Benefits paid (13,458) (8,191) (612) (499) Liability (Gain)/Loss due to Curtailment (572.00) Currency translation - - (318) (1,233) Estimated benefit obligation at end of year $153,987 $156,435 $10,493 $10,023 Change in plan assets: Fair value of plan assets at beginning of year $113,321 $122,126 $3,973 $4,949 Actual return on plan assets 7,309 (2,310) (135) (464) Employer contribution 275 1, Benefits paid (13,458) (8,191) (1,434) - Currency translation - - (126) (512) Fair value of plan assets at end of year $107,447 $113,321 $2,278 $3,973 Unfunded status of the plan ($46,540) ($43,114) ($8,215) ($6,050) Amounts recognized in statement of financial position: U.S. Pension Benefits Non U.S. Pension Benefits Current liabilities ($71) ($76) ($147) ($150) Noncurrent liabilities (46,469) (43,038) (8,068) (5,901) Net amount recognized ($46,540) ($43,114) ($8,215) ($6,051) The funded status of these pension plans as a percentage of the projected benefit obligation was 67% in 2016 compared to 70% in U.S. Pension Benefits Non U.S. Pension Benefits Projected benefit obligation $153,987 $156,435 $10,493 $10,023 21

22 Components of net periodic benefit cost for the years ended December 31: U.S. Pension Benefits Non U.S. Pension Benefits Component of net period benefit cost Service cost $ - $ - $ - $415 $441 $471 Interest cost 7,093 6,895 7, Expected return on plan assets (8,144) (8,953) (9,055) (125) (141) (178) Amortization of prior service cost Amortization of actuarial loss 4,369 4, $3,318 $2,025 ($987) $665 $698 $757 Weighted average assumptions used to determine the benefit obligation and net periodic benefit cost as of December 31: U.S. Pension Benefits Non U.S. Pension Benefits Discount rate 4.47% 4.68% 1.45% 2.04% Expected return on plan assets 7.50% 7.50% 3.20% 3.20% Rate of compensation increase N/A N/A 2.27% 2.27% The Company evaluates its discount rate assumption annually as of December 31 for each of its retirement-related benefit plans. The Company is using a Mercer bond model for determining its U.S. pension benefits. The Company is using a weighted average discount rate of 1.45% on its non U.S. pension plans for The Company s expected return on plan assets is evaluated annually based upon a study which includes a review of anticipated future long-term performance of individual asset classes, and consideration of the appropriate asset allocation strategy to provide for the timing and amount of benefits included in the projected benefit obligation. While the study gives appropriate consideration to recent fund performance and historical returns, the assumption is primarily a long-term prospective rate. The Company s overall investment strategy is to achieve growth through a mix of approximately 75% of investments for long-term growth and 25% for near-term benefit payments with a wide diversification of asset types, fund strategies, and fund managers. The target allocations for plan assets are 65% equity securities, 5% hedge funds and 25% to fixed income investments. Equity securities primarily include investments in large-cap, mid-cap and small-cap companies primarily located in the United States and international developed markets. Fixed income securities include corporate bonds of companies from diversified industries, mortgage-backed securities, and U.S. Treasuries. Other types of investments include investments in hedge funds that follow several different strategies. In accordance with FASB guidance, Plan management uses the following methods and significant assumptions to estimate fair value of investments. Mutual funds - Valued at the net asset value ( NAV ) of shares held by the Plan at year-end, which is obtained from an active market. Collective trust funds - Value provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The NAV's unit price is quoted on a private market that is not active. Hedge funds - Value provided by the administrator of the fund. The pricing for these funds is provided monthly by the fund to determine the quoted price. The fair values of the Company s pension plan asset allocation at December 31, 2016 and 2015, by asset category are as follows: 22

23 Fair Value Measurement at December 31, 2016 Quoted Prices in Active Markets for Identical Assets Significant Observable Inputs Significant Unobservable Inputs Total (Level 1) (Level 2) (Level 3) Money market $4,097 $4,097 $ - $ - US Government and agency obligations 3,774 1,574 2,200 - Exchange traded funds 23,389 23, Mutual funds 38,529 35,847 2,682 - Common stocks 30,820 30,819-1 Total Assets in the fair value hierarchy 100,609 $95,726 $ 4,882 $ 1 Investments measured at NAV (a) 9,116 Investments at fair value $109,725 Fair Value Measurement at December 31, 2015 Quoted Prices in Active Markets for Identical Assets Significant Observable Inputs Significant Unobservable Inputs Total (Level 1) (Level 2) (Level 3) Money market $4,861 $4,861 $ - $ - US Government and agency obligations 3,696 2,115 1,581 Exchange traded funds 23,433 23, Mutual funds 35,549 35, Common stocks 28,849 28, Total Assets in the fair value hierarchy 96,388 $94,714 $1,674 $ - Investments measured at NAV (a) 20,906 Investments at fair value $117,294 (a) Hedge funds are measured at fair value using the NAV per share practical expedient, and therefore have not been classified in the fair value hierarchy. 23

24 The following table provides a summary of the estimated benefit payments for the postretirement plans for the next five fiscal years individually and for the following five fiscal years in the aggregate. Total Estimated Benefit Payments U.S. Non U.S 2017 $9,100 $ , , , , Thereafter 50,467 2,168 The Company s expected contribution for the 2017 fiscal year is $472 for the U.S. pension plan. There is no funding requirement for non U.S. pension plans. Savings Plans The Company also has defined contribution savings and similar plans for eligible employees, which vary by subsidiary. The Company s aggregate contributions to these plans are based on eligible employee contributions and certain other factors. The Company expense for these plans was $1,263, $1,212 and $1,230 in 2016, 2015 and 2014, respectively. International Plans The Company maintains various pension and statutory separation pay plans for its European employees. The expense, not including the French and German pension plan, in 2016, 2015, and 2014 was $475, $564 and $787, respectively. As of their most recent valuation dates, for those plans where vested benefits exceeded plan assets, the actuarially computed value of vested benefits exceeded those plans assets by approximately $5, Capital Stock, Treasury Stock and Paid in Capital Authorized shares of preferred stock ($0.01 par value per share) and common stock ($0.01 par value per share) for the Company are 50,000,000 shares and 50,000,000 shares, respectively. In 2004, the Company purchased 805,270 shares of its common stock from the underwriter for a purchase price of $298. The common stock has been accounted for as treasury stock. 13. Income Taxes Income tax provision (benefit) consisted of: Current Domestic ($51) $240 $52 Foreign 8,976 6,568 2,540 Total current 8,925 6,808 2,592 Deferred Domestic (75) 4,782 2,429 Foreign (1,204) (1,704) (1,963) Total deferred (1,279) 3, Total $7,646 $9,886 $3,058 24